To tax, or not to tax

[ChuckW]

There has been some discussion of this subject recently under the Smugmug category without, in my view, a definitive answer so I am hoping to pursue it further.

I recently set up a new web site with Zenfolio (still a work in progress at this stage). There is an option available to collect taxes on sales made to a customer in a specific state. So, as I understand it, if you have a Texas business you could ask them to collect taxes for all Texas purchasers of your prints. What they do is collect the tax amount that you specify and send it to you; then it is up to you to pay the state. So, what to do?

Without doing either side of this argument complete justice I think that the arguments for and against collecting the tax are very briefly as follows:

For collecting: You have a business in Texas, a purchaser of a product that you created lives in Texas, the state's position is that you should collect the tax.

Against collecting: The Texas purchaser is purchasing from Zenfolio (or Smugmug or Exposure Manager, etc.), not you. You are acting as contractor on commission and are paid and issued the appropriate 1099 by your web site host company.

So, those of you who make sales in this way, what do you do? Has anyone actually obtained a legal or CPA opinion on this?

[epoh]

I always use my texas tax id to get an exemption from paying taxes to the lab, and then charge the taxes directly to the customer, and use those funds to pay my business taxes. I was under the impression that was the correct way to handle it.

[ChuckW]

Originally Posted by epoh

I always use my texas tax id to get an exemption from paying taxes to the lab, and then charge the taxes directly to the customer, and use those funds to pay my business taxes. I was under the impression that was the correct way to handle it.

Amy, Thanks for the response. Zenfolio does offer an option where they will just take orders for your business and it is then up to you to get processing done and fulfill the order yourself. If that were the case I would do exactly as you do. However in my case Zenfolio not only takes the order but collects the money, and pays the lab. The customer deals 100% with Zenfolio.

[epoh]

Ah, in that case Zenfolio will need to collect the taxes for you. Some sites will file for you directly with your state, other will pay you so you can, in turn, pay the state. In either case you need to be charging your clients sales tax and pay that tax to the state. Zenfolio is not the supplier, IMO. They are merely facilitating YOUR sale.

[ChuckW]

No other opinions on this? Those of you who allow your host company (Smugmug, Zenfolio, Exposure Manager et al) to sell your prints, are you collecting tax for buyers who reside in Texas? To be clear I am talking about transactions where your host company handles and fulfills the order, not transactions where the host forwards the order to you for fulfillment.

[thehatguy]

See if Barbara can give you guidance.

She helped me out when I started my embroidery busines 6 years ago.

barbara.truesdale@cpa.state.tx.us

John

[jonnydonut]

Not sure how Zenfolio works.

In the case of smugmug, they charge the client tax and take care of everything as their revenue. Then they cut me a check for some percentage of the difference, and they'll write that off as an expense for them.

[andyz]

Who fills the order, that is, making and delivering the print, the photog or Zenfolio? I would think it depends on that and where the order is filled from.

[ChuckW]

Originally Posted by andyz

Who fills the order, that is, making and delivering the print, the photog or Zenfolio? I would think it depends on that and where the order is filled from.

Zenfolio takes the order, deals with the lab (Mpix), and accepts payment. I have no involvement in the fulfillment of the order. After Zenfolio receives payment from the customer they credit my account for my "cut" of the sale and at the end of the year issue a 1099 for all monies credited to me. My involvement is in posting the images that are offered for sale I have no involvement in fulfilling orders.

Zenfolio itself does not automatically collect Texas sales taxes because they are a California company. They do, however, collect sales taxes from California customers even though the photographer whose prints are being sold resides in another state.

[jeffkohn]

It sounds like when Zenfolio is handling the print fulfillment, they're the ones selling the product and you're just a 1099 contractor. In that case you shouldn't have to worry about sales tax, because you're not accepting money from nor providing goods to the customer. You're just getting commissions from Zenfolio.

In the case of self-fulfillment it would probably be a different case.

[ChuckW]

Originally Posted by jeffkohn

It sounds like when Zenfolio is handling the print fulfillment, they're the ones selling the product and you're just a 1099 contractor. In that case you shouldn't have to worry about sales tax, because you're not accepting money from nor providing goods to the customer. You're just getting commissions from Zenfolio.

In the case of self-fulfillment it would probably be a different case.

That is pretty much how I am tending to look at it. Basically, I not fulfilling the order and I am not accepting payment from the customer so it would not be my responsibility to collect the tax. If the orders were forwarded to me for self-fulfillment that would indeed be a different story. I think that my situation is similar to the one described above by Jonny Carroll relative to Smugmug.

Just for the record, I am not looking to get out of collecting tax for the state I just want to do the right thing! I don't want to be collecting a tax where not required and where everybody else in similar circumstances is not collecting taxes.

[bondarnes]

Originally Posted by ChuckW

That is pretty much how I am tending to look at it. Basically, I not fulfilling the order and I am not accepting payment from the customer so it would not be my responsibility to collect the tax. If the orders were forwarded to me for self-fulfillment that would indeed be a different story. I think that my situation is similar to the one described above by Jonny Carroll relative to Smugmug.

Just for the record, I am not looking to get out of collecting tax for the state I just want to do the right thing! I don't want to be collecting a tax where not required and where everybody else in similar circumstances is not collecting taxes.

The Texas State Comptroller ALWAYS WANTS TO COLLECT SALES TAX for any sale with a Texas connection. If they can't collect from Zenfolio then they will look to you to pay it. You will probably never have this come up in an audit, but if it does are you prepared to pay several years worth of taxes out of your pocket. I tend to err on the side of caution.

[jss001]

I am the one who started that sales tax thread quite a while ago. The state has changed its stance (which was confirmed to me by another photographer whose sister is a CPA and passed on the heads up)...essentially, the state has changed the law and wants to collect sales tax sold to Texas residents even if the order is 100% fullfilled outside of the state of Texas. This causes a few problems, legal wise...

Smugmug, for example, can not do this, and has hemmed and hawed when I told them (and via some PMs)...rather than rehash the thread...start with SpinDizzy and follow on from there. Hpefully this link will work.

http://www.texasphotoforum.com/forum...ad.php?t=67162

If you sell online, and you 100% fullfill via Zenfolio or Smugmug, you might want to read it over. It appears that PrintRoom and PhotoReflect might allow the charging of tax on a state by state basis.

jss

[ChuckW]

Originally Posted by jss001

I am the one who started that sales tax thread quite a while ago. The state has changed its stance (which was confirmed to me by another photographer whose sister is a CPA and passed on the heads up)...essentially, the state has changed the law and wants to collect sales tax sold to Texas residents even if the order is 100% fullfilled outside of the state of Texas. This causes a few problems, legal wise...

Smugmug, for example, can not do this, and has hemmed and hawed when I told them (and via some PMs)...rather than rehash the thread...start with SpinDizzy and follow on from there. Hpefully this link will work.

http://www.texasphotoforum.com/forum...ad.php?t=67162

If you sell online, and you 100% fullfill via Zenfolio or Smugmug, you might want to read it over. It appears that PrintRoom and PhotoReflect might allow the charging of tax on a state by state basis.

jss

Thanks for the reply. I had read that thread previously but now notice that there have been a few newer responses that I had not seen. I sure would like to see that whole issue tested in court to see if the State's opinion would hold up on not - not with me as the defendant however! :) It appears to me that Zenfolio, Smugmug et al are acting as much more than a store front. On the other hand when we as photographers direct people to our web sites on these host services it would appear that we are using them like a store front.

As I said in a previous post I just want to do the right thing, but did not want to be collecting the tax when most other photographers in my position were not collecting it. In the mean time I have decided that in tax matters it is better to be safe than sorry and I will be collecting taxes from Texas buyers (if I ever get any!).

Zenfolio does have an option to do this. They will collect taxes from the state(s) I specify, in the amount I specify. They then forward those monies to me and it is up to me to forward to the state.

[w9ctm]

It appears to me, after reading the posts on the aforementioned link, that we as photographers my be screwed if we use an out of state (Texas) website/fulfiller. This is forcing any and all fulfillers(?) to charge Texas sales tax as well as provide a separate line item on thereceipt stating the amount of sales tax being collected. And, there must be tax collected on shipping and handling.
Is this going to create lots of additional paperwork for all of us? Probably. How does one go about tracking all of this?
And to show how little I know about Texas taxes (Only lived here 5 years), Do all cities and counties have the same tax rate? Or do you charge what the tax rate is for your county, as the sale is from your location? I figure I will get to find out a lot of this at tax time........

Did someone just open a can of worms?